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Condos vs. Townhomes: What’s the Difference?

The popularity of condo and townhome life is real. It’s especially true in urban areas where local restaurants, coffee shops and shopping centers are just a short walk away!

Maybe you’re a first-time home-buyer and you want a great location without a giant price tag. Or maybe you're tired of the responsibility that comes from owning a single-family home with property and you’re ready to downsize! Either way, the idea of living in a condo or townhome has your wheels turning.

You might be asking questions like: Are they worth the investment? Is one better than the other? What the heck is the difference between them?

Hang with us through some kinda-interesting real estate definitions, and we promise we’ll get to the good stuff ASAP!

What Is a Condo?

First, what is a condo? A condo is defined by the type of ownership. Simply put, a condo is a single unit where you only own the interior of that space. It’s usually in a building with similar units side by side, all with different owners. These residents share the rest of the building and contribute to a homeowner’s association (HOA). The HOA covers necessary upkeep and insurance for anything outside your unit.

What Is a Townhome?

A townhome refers to a type of architecture. It’s a multi-level home that shares walls with other homes on one or both sides. If you own your townhome, you own the interior, exterior and land on which the home sits. Townhomes also typically come with HOA fees.

What Are the Costs of Owning a Condo vs. a Townhome?

Now, let’s talk money. Like with any piece of real estate, the listing price of a condo or townhome doesn’t tell the full story. For instance, a mortgage for a condo typically has a higher interest rate than a mortgage for a townhome. To get the entire financial picture of what's involved with owning a condo or townhome, make sure you understand the costs of insurance, property taxes and any hidden HOA fees up front.

How Does Insurance Work for Condos and Townhomes?

First, let’s take a look at insurance. The homeowner’s insurance for your condo only covers the interior of your unit, so it’s much cheaper compared to insurance for a detached single-family home.

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You’ll still have to contribute to the building's insurance in the HOA fee (more on that later), but that only covers the shared spaces outside your unit. For instance, if your building needs roof repairs after a bad storm, the HOA insurance will cover it. But what about a kitchen fire inside your home? Let’s hope you have a homeowner’s insurance policy!

These days, it’s tough to find a lender who doesn’t require a policy with a mortgage. The right policy will cover unexpected expenses like:

  • Repairs for damage from fire, storms, etc.
  • Replacement of stolen belongings
  • Liability protection if someone sues you after getting injured in your home

Homeowner’s insurance for townhomes will provide the same coverage, but may also include the exterior of your home and the land you own around it. In that case, homeowner’s insurance for a townhome may cost more than homeowner’s insurance for a condo in the same area. 

How Do Property Taxes Work for Condos and Townhomes?

There’s no escaping it. If you own property, you have to pay property taxes. And while tax laws are different from state to state, property taxes are usually determined by two factors: your home’s assessed value and the tax rate in your area.

If you buy a townhome, the government will send a property assessor to determine how much your home is worth. They’ll consider things like:

  • Square footage
  • How much land you own 
  • Number of rooms
  • Neighborhood

Multiply the assessor’s number by the tax rate in your area and . . . boom! That’s how much you have to pay in property taxes each year.

Most mortgage lenders usually set property taxes up so you pay it as a portion of your monthly mortgage payment. That way, your taxes are spread out over 12 months, and you won’t forget to pay it! The lender will keep that tax money in a separate account and pay the government when it’s due, so you don’t have to worry about it.

If you have a condo, you’ll probably pay less in property taxes than if you own a townhome in the same area. That’s because you’re only paying taxes on the interior of your unit, which takes up less square footage than a townhome. Condo property taxes also account for the shared spaces in your building like hallways and common areas.

What Are the HOA Fees Like for Condos vs. Townhomes?

The cost of the HOA depends on the neighborhood. For example, New York City leads the way in average HOA fees at $571 per month. Ouch! The fees in smaller cities like Indianapolis, Indiana and Nashville, Tennessee average around $200 per month.(1)

But as a general rule of thumb, you’ll pay a higher HOA fee for a condo than a townhome—even in the same area.

Now, if you’re scratching your head over how a stinkin’ HOA can cost so freakin’ much, don’t lose your cool just yet. All HOAs are not created equally. The fee you pay the HOA depends on:

•    The city or county you live in
•    The cost of living in your area
•    The number of homes or units in the HOA
•    The age of the condo building or homes in the neighborhood
•    Services or amenities the HOA provides
•    The amount of space or land the residents share

An HOA is typically made up of a handful of residents elected by other owners to serve as the board of directors. They make key decisions about how to maintain the shared community spaces—like who to hire for landscaping and how much to pay them. In an ideal situation, the HOA considers the needs and wants of the community so everyone agrees on the types of services they want to pay for.

So why do condos usually have higher HOA fees than townhomes in the same area? That’s because their HOA fees cover more. For example, a condo HOA may cover:

  • Amenities like gyms, dog park areas, swimming pools, parking lots and rooftops
  • Security including video surveillance, front desk attendants, parking garage attendants and special key fob access to parts of the building
  • Services like trash pickup and snow removal

Unless you live in an upscale area, your average townhome HOA doesn’t include as many perks. Instead, it’ll cover basic things like landscaping, trash removal and snow plowing. Still, do your due diligence and find out the price before buying!

Be sure you partner with a professional before making this huge financial decision! An experienced real estate agent can help you learn all the necessary tax, insurance and HOA information you need.

What Are the Pros and Cons of Living in a Condo or Townhome?

At first glance, the main difference between living in a condo or a townhome is . . . space. In general, townhomes typically have more rooms. They also often include yards that may elevate your lifestyle and provide more room for pets to run around.

Here’s a word of caution: A place may look nice and advertise an HOA that takes care of most exterior maintenance, but the wrong set of neighbors or a mismanaged HOA can ruin everything fast. Make sure you consider the following beforehand: 

1. You’ll Experience More Community in Condo Living

In a condo, running into your neighbors is a natural part of life. You’ll cross paths as you use the same building entrances and exits, gym, trash depository, parking area, mail room . . . you get the idea. Some HOAs even hold special events to build community among condo owners.

Pro: Extra opportunities to make friends!

Con: More nosy neighbors to deal with.

2. You’ll Have More Privacy in a Townhome

Want to feel like you're living in your own home, not just down the hall from so-and-so? Want the freedom to enter and leave your home without bumping into Mrs. Green, who’ll inevitably tell a 20-minute story about her dog? If you're not looking for that much human interaction in your daily life, you might prefer townhomes to condos.

Also, if you’re ready for more space than an apartment but don’t want to take care of a large property, a townhome is a great in-between option. They offer more privacy than condos, but you don’t have the responsibility of a detached, single-family home. Just make sure you test out the thickness of the walls and find out how much your HOA fees might rise year after year—before pulling the trigger!

Pro: Less awkward small talk.

Con: You may feel less connected.

3. You’ll Interact With Your HOA a Lot More in a Condo

Your HOA is only as good as the people who run it. If your HOA is made up of a group of jerks who act like they’re still in high school and don’t know how to manage money, prepare for constant disappointment. On the other hand, a well-managed HOA can make your daily life feel like luxury.

Condos and townhomes aren’t the only homes that come with HOA membership and fees, but as a condo owner, the quality of the HOA will probably matter to you more.

That’s because an HOA is in charge of the services and upkeep that go with living in a condo building. Having a problem getting the packages you ordered online? Do you care about the environment and want to do your part? Take it up with your HOA. They’re the ones who hire the front desk attendant and decide whether or not the building should have a recycling center.

Pro: The right HOA can make your life easier.

Con: The wrong HOA could make you sorry you ever moved in.

4. You’ll Have to Meet Certain HOA Standards if You Live in a Townhome

If you live in a townhome, you may not interact with your HOA as much as you would in a condo, but you're not completely off the hook. A townhome HOA’s primary role is to preserve and increase the market value of your neighborhood.

As a result, they have rules and regulations about landscaping, decorations, paint color, upkeep and anything else that might affect the desirability of your neighborhood. While they won’t have much say about renovations you make inside your home, they will care about anything you do outside your walls.

For example, let’s say you want to switch out your mailbox for one that better fits your unique style. Better check with the HOA!

A reasonable HOA won’t try to control your life. They’ll just work to avoid situations in which one person’s laziness or unusual taste diminishes their neighbors’ home values.

Still, unreasonable and power-hungry HOAs do exist. Before buying, ask people who live there if they're happy with the HOA. Also, look into what services the townhome HOA provides and the cost of the HOA as compared to other neighborhoods in the area. The last thing you want to do is put your hard-earned money toward an organization that doesn’t use it well. Remember, the HOA is supposed to help you—not ruin your life.

Pro: An HOA can increase the value of your investment.

Con: You might have to put up with ridiculous rules and pay for services you don’t really need.

Ready to Buy? Talk to a Real Estate Pro!

If you’re thinking about buying a home, connect with a real estate agent who can help you through this process. They'll help you find a home that’s the perfect fit with the perfect price tag. Talk to our favorite experts in the biz: our real estate Endorsed Local Providers (ELPs). They’re superstars at serving their clients and will help you weigh the pros and cons of a condo or townhome for your particular situation.

Connect with a pro today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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